In a situation with high risks, credit might create further problems for the borrower. Explain
Answers
Explanation:
Money and Credit
Explain. The situations with high risks, credit might create further problems for the borrower: (i)The borrower had to pay interest on principal as well as on interest to lenders. (ii)The lenders can go against the defaulT borrower in the court to recover his principal amount and interest thereupon.
Every buisness,be it agriculuture,industry or service sector,involves risks.Every loan involves the liability of repayment of the amount plus interest .
Loan is taken in anticipation that the income from the use of loan will be more than the amount that is to be repaid.
If it works out favourably like this.Everbody stands to gain,both the lender and the borrower.
But if the enterprise fails, the borrower is in trouble.He will not have any means to repay the loan.He may find himself caught in the debt trap.
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